Most high-street Buy-to-Let lenders will not touch multiple-occupancy properties. However, as of mid-2024, at least nine lenders in the marketplace have studied the risks of this type of lending. In the case of more experienced landlords, they consider the risk quite low. This is evident by their rates, which can sometimes be very close to conventional BTL mortgage rates.
Also, some lenders offer loan-to-value requirements close to standard Buy-to-Let mortgages.
Please get in touch with Jubilee today, as some lenders are accessible only through a broker.
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When it comes to the logistics of an HMO Mortgage, or Houses in Multiple Occupation, it can often be difficult to establish what is needed and how to obtain this type of financing.
If you are feeling frustrated with the process, it is important to know that you are not alone and that a knowledgeable broker can often help steer the sometimes confusing waters with you.
At first glance, it can be hard to understand what mortgage option is right for your unique situation, which lender will be the best partner, and what precisely that lender is looking for when considering an application.
Here is some helpful information to help shed some light on this confusing subject.
What is an Unlicensed House of Multiple Occupation?
In houses in multiple occupancy or buy-to-let properties, there are two types – licensed and unlicensed. An unlicensed HMO is a property being let to three or more tenants that form two or more households. These properties have tenants sharing common areas such as the kitchen, family room, and bathroom.
To help define this further, we need to look at what is considered a “household” – a family of five relatives living at one property is considered one household and would not qualify. Three unrelated students renting one room at a property would be considered three separate households – this property would then qualify as an unlicensed HMO.
Information on Mortgages for “Multi-Let” Properties and Unlicensed HMOs
As with many financing options, it is always recommended that a professional mortgage broker guide you through the process. To begin, the property in question must have 3 to 4 tenants already living there or committed to renting out a room.
Depending on which lender you are working with, some other details may come into play when getting the loan approved, such as not having locks on any internal doors, having up-to-standard common living areas, and having separate tenancy agreements with each renter.
A mortgage broker will generally have broad market experience and be able to match you with a lender that will accommodate your unique circumstances.
What is a Licensed HMO?
Licensed houses in multiple occupancies become slightly more complicated to define. In general, the local authorities within a specific town have the ability to alter the definition to suit the location, making it impossible for there to be a defined benchmark of what a licensed HMO actually is.
Although there is no clear-cut definition, the rule of thumb is that licensed HMOs are properties at least three stories high and have five or more occupants. These properties will also require a license to be released to tenants. It is important to consult local authorities when looking to manage a licensed HMO property to ensure that the laws are being followed for the property to function legally.
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Information on Available Mortgages
While the market for multi-let properties and unlicensed HMOs is vast, there is a more limited market for their licensed counterparts. Do not let this discourage you, however – although there are fewer options, there are still some grand mortgage schemes available for licensed dwellings.
When we begin to move toward a more “commercial” type of property, lenders will generally require more information upfront to make an educated decision on approving the borrower’s application. It is also important to note that since the licensed market is smaller, financing is generally more expensive than for other property types. Also, lenders will look closely at many different factors when considering the mortgage.
First, lenders will heavily consider the borrower’s landlord experience when considering his or her mortgage application. Generally, the more experience and proven track record a landlord has, the better the chance of the loan being approved with favourable terms.
Lenders will consider a number of other criteria for licensed HMO mortgages. The details on these items are best discussed with a mortgage broker, as they can be numerous and often confusing for borrowers to understand.
A knowledgeable mortgage broker will become an invaluable asset for any borrower looking to secure financing for a house in multiple occupancies or Buy to Let property regardless if they are a beginner or seasoned landlord.
Lenders to consider
- Aldermore Commercial
- Paragon Mortgages – Must have a minimum of 3 let properties and 3 years plus experience as a landlord
- Fleet Mortgages Must have 3 years experience as a BTL Landlord
- Axis Bank (Max six bed-roomed properties)
- Keystone
- Cambridge & Counties, the Pension Fund of Cambridge County Council
- Interbay Commercial
- Kent Reliance (Maximum 8 Beds)
- Shawbrook